NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Insurance & Risk Management
Internal Assignment for December 2022 Examination

Question 1:
A Businessman running a Fabrication Factory want to avail a Life Insurance for his Family and
also, he wants to take General Insurance for his Factory Machines, Furniture & other assets. For
this Businessman pt. of view What Grounds General Insurance can be treated different paradigm
than Life Insurance?
Answer: Life insurance and general insurance are two different forms of insurances. General insurance
covers any other risk except for life-risk of the person injured. Life Insurance covers only the life-risk
of the person insured.

Life Insurance
Just like the name suggests, life insurance is a cover for your life. Life insurance can offer your family
monetary relief in difficult times. This type of insurance provides financial security to the nominee
(spouse, children, etc.), in case of an unfortunate event. It also serves as an investment tool in some
cases. Here’s all you need to know about life insurance.

Types of Life Insurance

Term Life Insurance: In this plan, the policyholder is insured for a fixed term or period. If the insured
person passes away within this term, then the nominee or family members of the insured can file a claim
to the insurance company and receive the insurance money. With an increase in life expectancy, term
plans these days offer policies that can cover you till you are 99 years old.
Endowment Plan: Endowment plan is a life insurance policy that also acts as an investment tool. In
the case of an endowment plan, the nominees can claim the life cover+ amount, if the insured person
passes away during the term of the policy. The policyholder can also claim survival benefits if he/she
outlives the term of the policy.
Unit Linked Insurance Plans: Commonly referred to as ULIPs, these plans provide growth of money
as well as life cover+. With Unit Linked Insurance Plans, policyholders can enjoy the benefits of
insurance and investment under a single plan. In ULIPs, the premium paid by the policy owner is
divided into two parts. One part is used to invest in markets, just like in the case of mutual funds, and
the other part is used to provide a life cover.
General Insurance
While life insurance covers the life of a person, general insurance provides cover to other aspects and
assets in a person’s life, for example, health, car, travel, home, etc. This type of cover insures assets
against theft or damage due to fires, natural calamities, accidents, man-made disasters like riots or
terrorist attacks, etc. While life insurance policies provide cover against the risk of life, general
insurance provides cover against other types of risks that may affect a person’s health or some of his/her
physical assets like a home or a vehicle etc.

Types of General Insurance

Health Insurance: This is one of the most common types of general insurance and provides cover
against medical emergencies and hospitalisation expenses. A person can choose between specific plans
for certain types of ailments, like heart and cancer ailments, accidents, etc. There are different types of
health insurance plans available in the market today. One can choose an individual cover or opt for a
family cover for all the family members.
Home Insurance: Just like insuring health, one can also insure his/her house for a certain sum of
money. Home insurance provides security against natural calamities like earthquakes, floods, riots,
theft, etc., that can damage one’s home or its belongings. If a person suffers any loss due to any of these
reasons, he/she can submit a claim to the insurance provider. After carefully assessing the extent of the
damage, the insurance company will pay the insurance claim.
Travel Insurance: Travel insurance is specific to a trip and a person can get the insurance right before
he/she starts the journey. This type of insurance provides security against the loss of baggage, delay or
cancellation of flights, accidents or hospitalisation expenses, etc, during a trip. If a person meets with
an unfortunate accident, or loses his/her baggage, he/she can claim travel insurance to cover these
expenses.

Key differences between General and Life Insurance

Term of contract
One major distinction between the two is the duration of the policy. Life insurance plans are long-term
plans and require policyholders to either pay a lump sum premium, or regular monthly, quarterly, or
yearly premiums for a significant amount of time. For example, 15-20 years or up to a lifetime. General
insurance, on the other hand, is a short-term plan that is generally renewed yearly.
Premium payment
The premium for a life insurance policy is paid at regular intervals like monthly, quarterly, or yearly.
In contrast, the premium for a general insurance policy is paid at once, either when the policy is bought
or when it is renewed. This may differ in the case of a travel insurance plan, where a person pays a
premium only while buying insurance for a specific trip.
Insurance Claim
In the case of a life insurance policy, the sum assured is paid to the nominee during the policy term in
the event of the policyholder’s death. The sum assured can also be returned to the policyholder on
maturity. In the case of endowment and money-back plans, the insurance provider also pays back the
interest earned on investments. Another important thing to note is that in case of a critical illness, the
policyholder can claim life insurance benefits upon diagnosis of the disease or health condition covered
under the policy, if the relevant rider is chosen during the purchase of the policy.
The insurance claim of a general insurance can depend on some specific events. For example, general
health insurance can only be claimed after hospitalisation, in case of a medical emergency or ailment
diagnosis, depending on the policy. In the same manner home, motor, or travel insurance can be claimed
only if there has been any loss or damage to an asset due to an unfavourable event like a robbery,
accident, or any such event.
Policy Value
The policy value for a life insurance plan depends on the preference of the policyholder. One can fix
the sum assured depending on the requirements of his/her family and the ability to pay premiums. The
sum assured is then paid back to the policyholder on maturity or to the nominee in case of an unfortunate
event.
Question 2:
If an Insurance & Risk Advisor need to advice upon various Loss Exposures to a Business House
What factors would be envisaged for the same?
Answer:
An effective and comprehensive risk management plan accurately identifies potential risks and creates
a plan to manage these exposures.
Protecting Property
Property holdings can often be a business owner’s largest asset. Your business’ long-term security relies
on evaluating and managing potential threats to your property. Develop a plan by completing an asset
inventory to determine the effect a loss could have and calculate coverage needs. Property insurance
can vary to suit your unique needs. A traditional policy provides the building’s replacement cost value
and the property’s actual cash value. Refrain from planning for a property coverage best-case scenario
as underinsured risk can be devastating.
Business Interruption
The U.S. Department of Labor estimates that more than 40% of businesses never reopen following a
disaster. Is your business prepared to weather the storm if disaster strikes? A fire could make your
facility temporarily unusable; what would you do? Traditional property insurance does not cover
temporary relocation or loss of income during repairs. Unprepared businesses are often forced to halt
operations during repairs, causing irreparable brand damage and leaving workers unemployed. Consider
adding business interruption coverage to your property insurance policy to mitigate this risk. The
coverage safeguards your business by compensating for operating expenses and lost income during
closures and repairs. Businesses can maintain payroll and potentially reallocate current employees to
assist with the cleanup effort.
Liability Losses
Regardless of planning, businesses can be inundated with unexpected surprises. Effective business
leaders protect their assets by carrying adequate commercial general liability (CGL) insurance
coverage. CGL policies provide coverage for claims of bodily/physical injury, personal injury (libel or
slander), advertising injury, and property damage as a result of your products, premises or operations.
A CGL policy enables you to continue normal operations while defending against claims of negligence
or wrongdoing. It also provides coverage for defense and settlement claim expenses.
Key Personnel Losses
An unexpected departure of a critical employee can cause disorder and uncertainty of day-to-day
operations. Your current performance level and revenue stream can be affected, including covering
financial loss of the employee or compensating a temporary replacement. Key person insurance can
help you resolve this unique risk with confidence. It is designed to provide financial stability and allow
your operations to continue with minimal disruption.
Employee Injuries
Understanding employee health and safety obligations includes the responsibility to indemnify injured
or ill workers during the course of their employment. Many business leaders misunderstand the full
effect workplace accidents have on their organization. Beyond initial treatment costs and lost production
time, on-the-job injuries impact insurance premiums indefinitely. Managing exposures and promoting
safety can assist in controlling workers’ compensation premiums. Proper pre- and post-accident
procedures can drastically reduce a workers’ compensation claim severity. A comprehensive safety
program can decrease your accident rate. Implementing safety procedures and programs will provide
tremendous long-term savings.
Managing Electronic Data & Computer Resources
A formal IT department and internet security measures help fight against vulnerabilities from
unscrupulous cybercriminals searching for an easy target. With an estimated liability of over $200 per
compromised record, multiplied by hundreds/thousands of customer records, a single data breach can
be devastating. Robust security measures are crucial if your organization stores customer records
electronically. Specialized technology coverage, such as cyber liability insurance, can help protect your
business from cyberattacks, data breaches and other internet-based exposures.
Environmental Exposures
Many industries beyond large manufacturing, mining or petroleum operations are at risk for
environmental liability losses. A comprehensive risk analysis can determine your business’ level of
exposure. Be aware that most commercial insurance policies contain pollution exclusions. Excluding
environmental insurance may make you uninsured against significant environmental loss exposures.
Employment Practices
Beginning at the pre-hiring process through to the exit interview, your business is at employment risk.
Employers will be sued by a prospective, current or former employee. While many lawsuits are
groundless, defending can be expensive and time-consuming. Your business should consider
employment practices liability insurance to protect against wrongful termination, discrimination (age,
sex, race, disability) or sexual harassment lawsuits. Download our Assessment for Employment
Practices Liability to evaluate your organization’s current employment risk.
Contracts
Many business leaders lack the time or expertise to adequately evaluate each clause they sign. This
oversight could force an organization to become saddled with additional risks accepted via risk transfer
from suppliers or customers. While cutting legal expenses can be tempting, protecting your organization
from accepting additional or unnecessary risk will save money in legal costs and insurance coverages.
Manage Your Supply Chain
Many businesses rely on third-party suppliers. If your supplier suffers an operational disaster, it could
force a crippling effect on your production abilities. As supply chains expand globally, your
organization can be helpless to your supplier’s exposures. Supply chain insurance provides coverage to
losses resulting from a supply chain interruption and allows supplier confidence with exposures beyond
your control. Insurance is a key component of any comprehensive risk management plan, but successful
risk management also involves prevention, training and contingency planning.
Risk management evolved as an idea that the cost of losses can be substantially reduced by designing
the business and training its employees to minimize losses, rather than just buying insurance to cover
losses. In other words, the management of risk can be scientific, not so much through controlled
experiments as is done in traditional science, but by studying losses to understand why the loss occurred
and how it can be prevented or mitigated. Information gained from studying losses could thus be
compiled and promulgated to others with similar risks. Moreover, such information is increasingly used
in expert systems, computer systems that not only store extensive knowledge, but also apply that
knowledge through the use of algorithms based on analytical principles developed by experts.
The cost of risk includes premiums, retained losses, financial guarantees, internal administrative costs,
outside risk management services, and taxes, fees, and other related expenses. Since the term risk has
several meanings, risk managers often use the term loss exposure to remove any ambiguity as to what
is meant. A loss exposure is any situation where a loss is possible, whether loss occurs are not.
Question 3:
a. What are Common Characteristics of Risk Management observed Insurance Context?
Answer:
Most entrepreneurs are risk takers, willing to invest resources with an expectation and hope, but no
guarantee, of reward. But, from the viewpoint of insurance, "risk" is another word for "peril" and
refers to things that can go wrong. Crime, vandalism, fire, a personal injury lawsuit, a computer virus,
equipment breakdown, non-delivery of raw materials, death or illness of a key employee—the list of
adverse events which can cause economic harm to your business or organization goes on.
Risk management is a broad topic. It involves taking steps to minimize the likelihood of things going
wrong, a concept known as loss control. It also involves the purchasing of insurance to reduce the
financial impact of adverse events on a company when, despite your best efforts, bad things happen.
No one likes thinking about what could go wrong. Nevertheless, as a prudent manager, you should
understand the risks your business faces. Until you identify risks, you can’t make good decisions
about managing them.
Risk management costs money, but the costs of not paying attention to safety concerns and not
purchasing insurance can be far higher in the long run than any front-end savings. While small
companies typically do not hire full-time risk managers, risk management should not be left to
chance. Specific individuals should be required to take responsibility for safety and compliance
programs as well as for insurance matters.
Effective loss control—reducing the number and size of losses—may impact both the availability and
affordability of insurance.
A business that is indifferent to loss control may have a higher-than-average number of insurance
claims. A really poor loss history can make it difficult to find insurance. Conversely, businesses that
actively manage risks, and thereby control losses, will have fewer claims and will often see those
efforts rewarded with lower insurance premiums.
Insurance Risk Management is the assessment and quantification of the likelihood and financial impact
of events that may occur in the customer's world that require settlement by the insurer; and the ability
to spread the risk of these events occurring across other insurance underwriters in the market. Risk
Management work typically involves the application of mathematical and statistical modelling to
determine appropriate premium cover and the value of insurance risk to 'hold' vs 'distribute'. Alignment
of the pricing market strategy and reinsurance arrangements to the organisation's risk appetite as well
as optimising the goals of the organisation. Assist clients to recognise risk events and changes to claim
rates earlier, so as to move towards a more market responsive, risk-based pricing approach which
ensures the efficient deployment of capital and a reduction in extreme risk event losses. Enhance the
feedback mechanism from claims function to underwriting and product development processes to
improve the performance and profitability of these processes.
Insurance companies can “self-insure,” or purchase coverage from a reinsurer, but this doesn’t ensure
all of the company’s risk is accounted for. One of the biggest values an insurance company provides is
customer service for those who need to submit a claim. If customers consistently have poor customer
service experiences, they’re likely to share their stories on social media, tarnishing the company’s
reputation and leading the company to fall behind their competition.
b. If a Health Insurance Policy agreement for Cover of Rs 7 Lakhs is about to expire on 31st of
December, on 28th Dec person gets Heart Attack & gets admitted in Hospital. Even though
person gets a reminder letter on 15th Dec, still Heath Insurance policy is Not renewed By
Pass Surgery is advised with Cost of Rs. 10 Lakhs Person also want to change Health
Insurance Company (Contract) from coming Financial Year. Kindly advise RIGHT course
of Action as per Health Insurance guidelines parameters.
Answer:
The ACCORD health insurance programme was started because the tribals did not have financial
resources to access hospital care. They preferred to lie down in their huts and die. After introducing
health insurance, the tribals now pay a small premium when they are healthy and avail of benefits when
they are sick. They do not have to worry about money at the time of illness. The DHAN foundation
discovered that the single largest reason for indebtedness among their SHG women was loans to meet
medical expenses. After starting their health insurance programme, women no longer have to take a
loan when they are sick, as they are protected by the health insurance programme. With elections
looming, the Assam government introduced a health insurance programme for its citizens.
Unfortunately, it was so poorly designed that it did not meet the needs of the people, especially the
poor. Thus, a golden opportunity to protect the poor was lost.
Following Are the Parameters to Compare Health Insurance
Scope of Cover
This is the main point to keep in mind while taking health insurance plan. Don’t just take a plan solely
on the basis of less premium. You should also look at what the plan covers. The plan that you buy
should be comprehensive and cover all your medical insurance needs.
Lifetime Renewability
This is important as one should check for the age limit till which the policy can be renewed. If it is only
for some time during your younger age then it should be such that it should cover your old age too. So,
the policy should be renewed continuously. Most health insurance policies these days offer the benefit
if lifetime renewability
Waiting Period
It is good to check the waiting period as different plans have different waiting periods especially for
any Pre-existing medical conditions, ranging from 1 year to 4 years Every insured has to serve a waiting
period for any pre-existing illness as well as for common illnesses like Cataract etc.
Super Top Up Plans
Choosing the right top-up plan is important. All of us cannot afford the medical insurance coverage
due to the high premium, so opting for a Super top-up plan can be ideal for such customers. The Top-
plans normally have a reduced premium owing to the deductible component which has to be triggered
in order to activate the plan.
Cashless Claim Transaction
Before buying health insurance plan one should check whether your nearby hospitals are part of the
cashless network list for that insurer. If it is there then you don’t need to run around collecting
documents and papers at the time of hospitalisation. This will help you immensely at the time of
emergency hospitalization especially.
The above framework is a guideline to help planners develop appropriate health insurance plans. The
main inputs are from the local situation. The final plan will depend on this. Most of the important
elements have been covered in this document. Details like cost, prevalence etc have been suggested,
but ultimately the planner has to use local and regional data. It is not difficult to access this data, most
are available. All it requires is a little effort to collate the same.